Context: India planning to move to the T+0 trading settlement system from the current T+1 system
India to move to T+0 trading settlement system before FY24-end
- Before the end of the financial year 2023-2024, India will move to set up same day market settlement of trades (T-0) and to instantaneous settlement a year later, says SEBI chairperson.
- It means shares or money will be credited to the investor’s account on the day of the trade itself.
- This will be a parallel system in existence with the current cycle and will be completely optional.
What is the T+0 trading settlement system?
- About: The interval of time between the trade date on which an order is executed in the market and the settlement date on which a trade is deemed final is known as the trade settlement period in the securities industry.
Securities and Exchange Board of India(SEBI):
- About: SEBI is a statutory body established on April 12, 1992, in accordance with the provisions of the SEBI Act, 1992.
- Functions: Protect the interests of investors in securities and promote the securities exchange market.
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- Status in India: India already operates on a” T+1” settlement framework (settlement one day after the trade is initiated ) and moving to” T+0” would mean settlements on the same day ( within an hour) and instant settlement would ensure trades are settled immediately.
- For Example: if someone buys shares on Monday, he\she will receive them in his/her demat account on Monday itself.
Prerequisites for instant trade settlement
- A real-time payment system: UPI( Unified Payment Interface) enables instant and seamless fund transfers across banks and platforms.
- Online depositories: NSDL(National Securities Depositories Limited) and CDSL (Central Depositories Services Limited) hold securities in electronic form and facilitate their transfer through demat accounts.
- Robust technology stack: Robust technology stack is needed for high-speed and high-volume trading and settlement activities.
T+0 trading settlement system: Benefits
- Investor’s point of view: more efficient use of capital as it will free up that amount of margin (the money that needs to be blocked for buying shares) that can earn interest in the bank account
- Reduction In Unsettled Trades: Reduces the number of outstanding unsettled trades and decreases the unsettled exposure to clearing corporation of India limited(CCIL) Reduction in systemic risk to the economy.
- It will make India one of the fastest markets globally in terms of the settlement system after China.
| CLEARING CORPORATION OF INDIA (CCIL)
About: The Clearing Corporation of India Ltd. (CCIL) was set up in April 2001 to provide guaranteed clearing and settlement functions for transactions in Money, G-Secs, Foreign Exchange, and Derivative markets |
T+0 trading settlement system: Challenges
- Complexities associated with switching systems: Implementing T+0 trading settlement system can be challenging due to the complexities associated with switching systems, especially in intricate markets.
- Potential Market Volatility: Faster settlements, such as T+0, might lead to quicker market reactions, introducing the potential for increased market volatility.
News Source: Business Today
9 Dec 2023
